Spanish telecoms giant Telefonica has signed an agreement with China Unicom to sell almost half its stake in the company back to China's second largest telecom operator, Telefonica said in a stock market notice on Sunday.

The sale will allow heavily indebted Telefonica (Madrid) to "increase its financial flexibility", the statement said. The Spanish firm will remain a key shareholder in China Unicom (Beijing, P.R.C.) by holding onto a 5.01% stake in the company.

Telefonica will sell over one billion shares to China Unicom for around $1.62 billion, equivalent to 4.56% of the share capital of the company, Telefonica said.

The acquisition of shares is expected to be completed no later than July 31, the statement said.

Telefonica remains committed to its "strategic alliance" with the Chinese operator, the firm said, and both companies are "exploring new opportunities to work together in the digital world".

Telefonica's chairman, Cesar Alierta will continue as a board director of China Unicom while Chang Xiaobing, chairman of China Unicom will stay on Telefonica's board of directors.

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